In mid-April, when the government started taking stiff, unprecedented measures to prick the housing bubble, quite a few domestic lenders put up a brave front claiming they could stoutly bear even a 30-percent decline in property prices.

Yet, the latest warning by China's banking regulator may just be the signal commercial banks need to speedily apply the brakes and steer clear of mounting uncertainty in the realty sector.

In its 2009 annual report to take stock of the record 9.6-trillion-yuan ($1.4 trillion) in loans that Chinese banks granted last year to shore up flagging economic growth, the China Banking Regulatory Commission has cautioned in no uncertain terms about the risk contagion associated with continued lending to the property sector.

With the total outstanding loans of the property sector valued at 7.33 trillion yuan as of end-2009, the regulator has asked commercial lenders to subject property loans to stress tests every quarter to forestall any likelihood of massive loan defaults.

Thanks to reforms at State-owned banks and tighter supervision, Chinese banks largely waded into the global financial crisis in much better shape than counterparts in developed countries.

Their growing exposure to the property sector, however, has exacerbated the possibility that some credit assets may turn into "substantial risks or losses" in the midst of the battle against runaway speculation in the real estate market.

The credit governor's warning has come in time; fund disbursers must act, right now.

(China Daily 06/17/2010 page8)